Walden University ScholarWorks Walden Dissertations and Doctoral Studies Walden Dissertations and Doctoral Studies Collection 2021 Impact of Corporate Governance on Financial Reporting and Profitability of Banking Susan Ortega Walden University Follow this and additional works at: https://scholarworks.waldenu.edu/dissertations Part of the Accounting Commons This Dissertation is brought to you for free and open access by the Walden Dissertations and Doctoral Studies Collection at ScholarWorks. It has been accepted for inclusion in Walden Dissertations and Doctoral Studies by an authorized administrator of ScholarWorks. For more information, please contact [email protected]. Walden University College of Management and Technology This is to certify that the doctoral study by Susan Ortega has been found to be complete and satisfactory in all respects, and that any and all revisions required by the review committee have been made. Review Committee Dr. John Bryan, Committee Chairperson, Doctor of Business Administration Faculty Dr. Frank Bearden, Committee Member, Doctor of Business Administration Faculty Dr. Kevin Davies, University Reviewer, Doctor of Business Administration Faculty Chief Academic Officer and Provost Sue Subocz, Ph.D. Walden University 2021 Abstract Impact of Corporate Governance on Financial Reporting and Profitability of Banking by Susan Ortega MS, Argosy University, 2006 BS, University of Phoenix, 2005 Doctoral Study Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Business Administration Walden University April 2021 Abstract A lack of corporate governance and financial reporting may lead to a decrease in profitability and bank closures due to poor management, lack of capital, and liquidity. Based on agency theory, the purpose of this correlational study was to investigate the relationship between corporate governance, financial reporting, and three measures of profitability; return on assets, return on equity, and net interest margin, in 80 banks within the Midwest from 2015–2018. The data were collected from the banks' websites and the Federal Deposit Insurance Corporation (FDIC). The results of the three regression analyses were not significant; however, financial reporting was a more substantial contributor ( = -.122) than corporate governance ( = -.021) for return on equity, so bank leaders should monitor and maintain robust financial reporting systems. The implications for positive social change include the potential to build confidence amongst investors, managers, employees, and board members. Banking leaders with accurate banking information and sound corporate governance may improve community banking, leading to increased investors, strategic assumption of risk, and community economic and job growth. Impact of Corporate Governance on Financial Reporting and Profitability of Banking by Susan Ortega MS, Argosy University, 2006 BS, University of Phoenix, 2005 Doctoral Study Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Business Administration Walden University April 2021 Table of Contents List of Tables ..................................................................................................................... iv List of Figures ......................................................................................................................v Section 1: Foundation of the Study ......................................................................................1 Background of the Problem ...........................................................................................2 Problem Statement .........................................................................................................4 Purpose Statement ..........................................................................................................4 Nature of the Study ........................................................................................................5 Research Question .........................................................................................................6 Hypotheses .....................................................................................................................6 Theoretical Framework ..................................................................................................7 Operational Definitions ..................................................................................................8 Assumptions, Limitations, and Delimitations ..............................................................10 Assumptions .......................................................................................................... 10 Limitations ............................................................................................................ 10 Delimitations ......................................................................................................... 11 Significance of the Study .............................................................................................12 Contribution to Business Practice ......................................................................... 12 Implications for Social Change ............................................................................. 13 A Review of the Professional and Academic Literature ..............................................14 Literature Search Strategy..................................................................................... 14 i Corporate Governance Theories ........................................................................... 16 Other Relevant Theories ....................................................................................... 19 The Concepts and Definitions of Corporate Governance ..................................... 25 Corporate Governance and Financial Reporting in Regional Banks .................... 34 Financial Reporting in Banks................................................................................ 36 Profitability Measures ........................................................................................... 37 Corporate Governance Mechanisms ..................................................................... 38 Transition .....................................................................................................................45 Section 2: The Project ........................................................................................................47 Purpose Statement ........................................................................................................47 Role of the Researcher .................................................................................................48 Participants ...................................................................................................................49 Research Method and Design ......................................................................................50 Research Method .................................................................................................. 51 Research Design.................................................................................................... 52 Population and Sampling .............................................................................................54 Ethical Research...........................................................................................................55 Data Collection Instruments ........................................................................................56 Instruments ............................................................................................................ 56 Corporate Governance .......................................................................................... 57 Financial Reporting ............................................................................................... 58 ii Financial Performance .......................................................................................... 58 Nature of the Variables ......................................................................................... 59 Data Collection Technique ..........................................................................................59 Data Analysis ...............................................................................................................60 Study Validity ..............................................................................................................62 Transition and Summary ..............................................................................................65 Section 3: Application to Professional Practice and Implications for Change ..................66 Introduction ..................................................................................................................66 Presentation of the Findings.........................................................................................67 Testing the Assumptions ....................................................................................... 67 Inferential Statistical Analysis of the Study Sampled Banks ................................ 76 Interpretation of Findings ..................................................................................... 85 Applications to Professional Practice ..........................................................................90 Implications for Social Change ....................................................................................93